What Documents to Send to Investors?
It takes quite a bit to establish and to nurture professional investor relationships. Business owners should support their claims of business success with appropriate documentation.
But what sorts of documents are investors expecting to receive from entrepreneurs? Should you simply send every single file your business has generated?
The following guide will examine the answers in detail and discuss the appropriate documents in three different stages of the entrepreneur-investor-relationship.
WHEN TO SEND DOCUMENTS TO AN INVESTOR?
Before we examine the documents circumstantially, it’s useful to consider the appropriate times for sending them in the first place. There are essentially three different stages in investor relations and all three require different documentation.
- First stage – the introduction of the business to the investor
- Second stage – pitching the business to the investor and closing the deal
- Third stage – fostering investor relations with the investor
The approach you take on discussing matters with the investor will change as your relationship evolves through the stages. The obligation to share certain information also shifts and you don’t want to be caught providing inappropriate information to your investors. At the same time, you should avoid the mistake of providing the investor with detailed paperwork too early.
We’ll scrutinize the documents in all stages in detail below, but lets peer into the importance of the documents in each stage.
In the first stage, your documents are aimed at introducing the business to the investor. Therefore, they should be able to gain attention and often to do so in an instant. Investors receive a number of investment pitches and documents, but they don’t have time to read all of them. This puts pressure on the initial documents and information you send. The prerequisite is to be informative enough to ensure the investor understands what your business is about, but short enough to ensure the investor reads it through. On top of it, you need to make it eye-catching and unique! If the documents fail to spark the imagination of the investor, you undoubtedly won’t need to worry about the documents in the next stages.
In the second stage, you have already established a connection with the investor. The person is interested to find out more and you should ensure the documents provide enough supporting information to the investor. This is the moment for finalizing the deal, to presenting your business in a truthful and appealing fashion.
Finally in the third stage, the investor is now on board and both of you are focused on growing the business. You’ll be providing further information on company performance and supporting documents on business development. Essentially, since your investor is now part of the business, you’ll provide copies of the documents you inspect as the founder/owner.
The above is a broad sweep of the reason for sending the documents. Let’s now turn attention to understanding the specific documents in a greater degree.
FIRST STAGE: INTRODUCTION TO YOUR BUSINESS
Introducing your business to potential investors is one of the most daunting tasks you must do. But if you prepare well and learn the secrets of the pitch, you don’t need to worry about failing. Not all the investors you pitch to will be interested in your business, but this isn’t always down to you failing the pitch.
When you are creating the first connection with investors, it’s crucial to keep it simple, informative and captivating. The key documentation you want to send to the investor includes:
- The elevator pitch
- The business plan
Sending an elevator pitch
First, you must generate the first connection. Whilst it’s always a healthy idea to meet potential investors face-to-face, you’ll likely contact them via e-mail at the start. Instead of typing whatever comes to mind to your e-mail, you should always try to approach the e-mail through the idea of the elevator pitch.
An elevator pitch is your chance to present the business and the opportunities it has for the investor in a short amount of time. The name quite simply supposes you only have enough time for the elevator to move from one floor to the other, i.e. a limited time to gain attention. If you can’t spark the interest and imagination of the investor in a few seconds, you probably won’t manage to do it in an hour either.
What components are required for a proficient elevator pitch? Your pitch should always focus on the following components, which are neatly discussed in an appropriate order.
A short and simple message. As mentioned, your elevator pitch e-mail shouldn’t last forever and take too much time to read. You don’t have to share everything about the business – just enough to spark the investor’s attention. On the other hand, you also don’t want it to skip essential details about the business.
Once you’ve written your pitch, check if it answers these questions:
- What is the product or service your business is selling?
- Who is your customer?
- How does your product/service help this customer?
- What is the problem your product/service solves?
Mention your business traction. The pitch should mention the traction, as this is a powerful way to attract positive attention. This can be in terms of sales or even social media interest.
Previous business accomplishments. If you’ve history in business, don’t be afraid to mention it. Did you help a start-up to succeed? By naming your previous accomplishment, you might generate further interest. Just don’t list secondary things you’ve done – there’s time for this later.
Possible investments the business has attracted. If you already have a major investor on board, you might want to name them during your pitch. Don’t endeavor into details or talk about numbers; simply mention the investor. Remember you shouldn’t name investors unless they are committed.
Explain your reasons for approaching the investor. Finding the right investor for your business is important, as not all investors are suitable matches for the business. There should be a reason you feel the investor could, not only benefit from your business, but also add expertise for the company. Hint: the investor’s bank account isn’t a valid reason!
Call to action. The e-mail should always include a call to action. This could be a suggestion of a face-to-face meeting, a Skype call or a request for the investor to browse through your website.
Contact information. An obvious advice, but nonetheless a crucial point to make. Your contact information should be clearly present in all the documents and e-mails you send.
Furthermore, read your pitch before you hit the send button. Use the above as a checklist and ensure you use proper grammar throughout. If your investor finds your e-mail filled with typos and lazy grammar, he or she is unlikely to trust your ability to run a successful business.
For more on elevator pitches, check the below YouTube video:
Sending a business plan
As well as focusing your efforts on the elevator pitch, you should provide the investor with a business plan. When we say business plan, we don’t propose you should send the full hundred pages document you should have devised for your team to understand objectives.
Investors are a busy bunch and as we previously stated, they don’t have the luxury to read everything that is sent on their way. If you send them a full-blown business plan, you have nearly zero chances of getting it read. Nonetheless, since the above elevator pitch doesn’t provide the luxury of noticing all details, a business plan should be included as an attached document.
Including the business plan, or the so-called deck, to your introduction e-mail is vital. One of the best examples of an adept deck comes from venture capitalist David Gowan. His ‘How to Not Write a Business Plan’ blog post is worth a read for entrepreneurs searching for investment.
The document you sent, either as a Power Point presentation or a Word-file, should include:
- Contact information. Any business-related documents you provide the investor should always include contact information.
- A mission statement. What is your business set to achieve? A proper mission statement is short, but outlines business objectives clearly. Your goal should also be something realistic and tangible. For example, a mission statement calling for world domination doesn’t outline a clear or achievable goal.
- Introduction to the team. While the elevator pitch won’t have much space to introduce the team behind the company, your business plan should detail the core team and each person’s background.
- Addressing the problem, your business is aiming to solve. You’ve mentioned the problem your product/service tries to solve and the business plan should outline the problem in detail. Why does it matter and how can you solve it?
- Introduction to the product and its benefits. You also need to discuss the product/service in detail and outline the benefits of using it. Explain the technology and methodology behind the product/service and mention any patents you might have.
- Customer or distribution figures. If you’re already in business, highlight the sales figures or distribution figures.
- Explain the sales strategy. Showcase how the business plans to attract customers and what will it cost.
- Mention market estimations and introduce the competitive landscape. You should also provide a substantial understanding of the market for the product/service, together with the competitive landscape.
- Briefly talk about finances. You shouldn’t delve into too much detail over finances at the first stage, but some financial documents and figures should be briefly mentioned. The earnings statement, both historical and forecast, is the key finance document to discuss.
- Provide a short roadmap of the future. You should also explore the future and explain your future milestones to the investor.
Here are some great examples of pitch decks that helped well-known companies raise billions of dollars including Airbnb, Linkedin, and Square.
SECOND STAGE: CLOSING THE DEAL
If the first stage documents are able to impact the investor positively, you’ll begin discussing the investor’s involvement in more detail. As the relationship develops, the documents become circumstantial. This doesn’t propose you should simply provide every file to the investor in order to close the deal. Certain information, such as specific financial figures, are sensitive and you don’t want to provide this material necessarily through e-mail or post.
The information and documents investors are likely requesting at this stage includes:
- The full business plan. Once the relationship is established and the investor shows clear interest towards the business, provide him or her a copy of the full business plan. This should provide in-depth information about the way your business is organized and details about the future strategy.
- Financial statements. Specific financial documents investors are expecting to examine at this stage include:
As mentioned above, carefully consider sending this information to your investor, as it might be safer to provide a copy of the documents during a meeting instead.
- Resumes and references of the team. Introduce the team comprehensively and provide everyone’s resume to the investor. This can help highlight the expertise behind the business idea, as well as help the investor notice any previous connections and accomplishments.
- Detailed product/service information. You should also send a comprehensive document about the product and service. This includes technical and methodological details of how the product/service operates. You want the investor to understand the product/service as well as possible.
The business plan, together with his resumes and references should be provided at the start of the negotiations. While the documents in the first stage are about generating interest, the second stage documents should explain the business idea thoroughly and provide the investor with reassurance that an investment deal is the right decision.
As the discussions evolve, you need to provide further information, such as the financial documents, in order to close the deal. Some of the mentioned documents are required in case you finalize an investment deal.
THIRD STAGE: PROVIDING REGULAR UPDATES ABOUT YOUR PERFORMANCE
Once you’ve managed to sign an investment deal with the investor, the need to send documents doesn’t simply end. In fact, as the investor becomes part of your business, you must share regular performance updates with them. This is an essential part of nurturing investor relations and can help the business grow, as information is shared appropriately with all shareholders. If your investor is aware of the business’ development strategy and financial information, they are better equipped to enhance these aspects of the business.
The term sheet you signed with the investor will feature a list of documents you agree to provide and the means of providing these. The sheet typically follows a set of milestones, you’ve agreed to move towards and these milestones clarify the required documentation.
The regular updates generally include documentation such as:
- Financial documents. The business must provide information on finances, as well as future forecasts. These documents include:
- Financial statements
- Financial calculations – these include documents to show cost prediction for rolling out a new product, for example.
- Sales and revenue sheets – the documents should inspect at monthly, quarterly and annual data and compare current figures with past estimations.
- Information regarding product/service development. The importance of regular development updates increases if the development process is still at the starting blocks.
These documents can be vital to allow the investor to understand the financial documents, for example. If your business is struggling to achieve its sales figures, the investor can know this is due to problems in product development, or something similar.
- Information regarding your team. Teams behind the business can be quite fluid, with new members coming in and old ones leaving for different reasons. You should keep the investor involved over these developments as well, since they can also explain certain operational aspects in detail.
- Provide customer feedback. Finally, you want the investor to read on customer feedback. It’s essential to be upfront about any negative feedback, as your investor will be better equipped to help the business solve the problem. Sharing the negative feedback could even help your investor to understand the business needs additional cash for product development.
On the other hand, you don’t just want to share the negatives. When your customers are congratulating you over an issue, let the investor know about it. You want them to feel proud of the business successes.
Your investor is likely a board member as well and translating into your business being legally required to send certain documents to them. These include financial statements, as well as board’s minutes of the meeting and other such information.
Providing enough information for your investor is vital for not just attracting the investment, but also fostering close investor relations. It is important to send enough information at the start to spark interest, without revealing all of your business secrets. Once you’ve signed a deal, you want to ensure the investor receives transparent and in-depth information. This will ensure the investor has the tools at his or her disposal to help your business to succeed.
The above list, with its segments, will hopefully provide you a vigorous starting point to nurturing investor relations through documents. To stay on top of these documents, you should create a checklist of documents and set alarms for when you need to provide these documents to the investor. This can help you stay on top of the relevant paperwork and ensure your investor relations are built on trust and transparency.
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